Trump Administration announces steep tariffs on Canada, Mexico, and China

February 2025

In brief

What happened?

President Trump on February 1 signed three executive orders announcing his intent to impose 25% tariffs on imports from Canada and Mexico and a 10% additional tariff on imports from China. Certain “energy resources” that are products of Canada would be subject to a tariff of 10%. The tariffs were set to take effect at 12:01am on February 4, 2025 under the authority of the International Emergency Economic Powers Act (IEEPA) to address national security concerns related to unlawful immigration and the flow of illicit drugs and drug precursors.  

Following talks with the leaders of Mexico and Canada, President Trump on February 3 said he would pause implementation of tariffs on imports from those countries for 30 days. The executive order for China is set to take effect as scheduled.  

In response to President Trump’s executive orders, Mexico’s President, Claudia Sheinbaum said that Mexico would impose retaliatory tariffs and non-tariff measures; however an agreement has been reached between both countries to pause implementation. Canadian Prime Minister Justin Trudeau announced specific counter-measures in response but also reached an agreement to pause implementation. China’s Ministry of Commerce said the executive order violates World Trade Organization (WTO) rules and intends to file a complaint with that body. 

Why is it relevant? 

President Trump’s newly announced tariffs are expected to have significant implications, including higher prices for consumers, supply chain disruptions, and escalated trade tensions with the US’s biggest trading partners. 

The Trump administration’s executive orders also feature a new, more restrictive approach to applying tariffs. The executive orders for each jurisdiction state that the duties imposed by the orders will not be eligible for duty drawback and the products covered therein will not be eligible for the duty-free de minimis treatment under 19 U.S.C. 1321. 

To illustrate how impactful these tariffs might be, PwC prepared a US Tariff Industry Analysis using 12 months (October 2023 to October 2024) of US Census data along with Trump’s announced pre-inauguration tariffs. The data reflects that the proposed tariff measures will be substantial. Details of this analysis are discussed below.     

Action to consider 

Companies subject to the newly announced tariffs should conduct thorough impact assessments to understand the financial and supply chain impact on their operations, and explore mitigations strategies such as alternative sourcing options, adjusting inventory levels to account for potential delays and increased costs, utilizing special trade programs, and renegotiating supplier contracts.

In detail

Overview 

Since the November elections, President Trump has focused his announced tariff actions on key trading partners. In keeping with his promised trade policy agenda, President Trump on February 1 signed executive orders imposing 25% tariffs on imports from Canada and Mexico and an additional 10% tariff on imports from China. While the announced tariffs on imports from Canada and Mexico were paused for 30 days following talks with the leaders of those countries, the tariff increase for China is set to take effect at 12:01am on February 4, 2025.   

The Trump Administration cited national security concerns related to illegal immigration and the influx of fentanyl into the United States as the reason for the new tariffs. As a means to discourage countermeasures, the executive orders include provisions allowing the US to further increase tariffs on Mexico, Canada, or China should retaliatory measures be implemented. The orders also grant President Trump discretion to modify the scope and duration of the tariffs. 

The executive orders state that duty drawback will not be available with respect to the duties imposed under the orders, and that de-minimis treatment under 19 U.S.C. Section 1321 will also not be available for the covered articles.  

Note: Previously, on September 13, 2024, the Biden Administration announced its intention to take executive action against alleged “significant increased abuse” of the so-called “de minimis” exception by various entities — including several China-founded e-commerce platforms — that ship illegal and unsafe products into the United States to the detriment of American consumers, workers, and businesses. In January, US Customs and Border Protection (CBP) issued two notices proposing new rules that would require advance electronic submission of additional data and tighten the de minimis duty exemption, making certain tariffed goods ineligible for duty-free entry to better protect US businesses and strengthen trade enforcement.  

The specific executive orders are addressed below, including results from PwC’s US Tariff Industry Analysis using 12 months (October 2023 to October 2024) of US Census data along with Trump’s announced pre-inauguration tariffs, and anticipated responses from China, Mexico, and Canada. 

China tariffs 

The additional 10% tariff imposed on China is on all Chinese origin goods entering the United States. The Trump Administration indicated that the additional tariffs are intended to address China’s role in the production and export of fentanyl and related precursors, which has been linked to the opioid crisis in the US. These tariffs are in addition to the extensive tariffs first imposed by President Trump during his first presidency as part of the US-China trade war. Under Section 301 of the Trade Act of 1974, Trump had implemented tariffs covering over $360 billion worth of Chinese goods, which was intended to address unfair trade practices and theft of intellectual property. President Biden largely maintained these tariffs throughout his administration.  

PwC US tariff industry impact for China: The additional 10% on existing tariffs will raise some categories of products (such as consumer goods) to 10% and others (semiconductor chips) will be as high as 60%, since these categories were just increased on January 1, 2025. The additional 10% tariff on all goods from China could result in approximately $45 billion a year in incremental tariffs.    

Notably, products that were identified as List 4B goods and ultimately excluded from previous Section 301 tariff actions will now be subject to increased tariffs, including: 

  • Electronics: Such as cell phones, laptops, video game consoles, and other consumer electronics; 
  • Clothing and Footwear: A variety of apparel and footwear products; 
  • Toys: Many types of toys and games; and 
  • Household Goods: Items like kitchenware, furniture, and various household appliances. 

China’s proposed retaliatory actions 

This latest round of tariffs will serve to further increase tensions between US and China. China has condemned the additional tariffs and announced plans to file a complaint with the WTO and vowed to take retaliatory measures against US exports.  

Observation: To address the impact of past tariffs imposed by the US, China has imposed counter-tariffs on a wide range of US goods, taken steps to reduce its reliance on US imports by strengthening trade relations with other countries, and utilized monetary policies to supports its strategic objectives. These examples are not dispositive of what might happen in response to the current tariffs but could be actions under consideration by China. 

Mexico tariffs 

The Trump Administration’s February 1 executive order announcing an intent to impose a 25% tariff on all Mexican origin products cited concerns over Mexico's role in allowing illegal immigration and the transit of fentanyl into the US as justification for the order. 

In response, Mexican President Claudia Sheinbaum on February 1 announced that Mexico would implement both tariff and non-tariff retaliatory measures against the United States. However, after a conference call, President Trump on February 3 said that he would be pausing the tariffs for 30 days after President Sheinbaum agreed to send 10,000 members of the Mexican national guard to the border to assist with border protection. The Mexican and the US governments will have a series of meetings during this period to reach an agreement on the issues of immigration and fentanyl.   

PwC US tariff industry impact for Mexico: If implemented in the future, the 25% tariff on all goods from Mexico could result in approximately $132 billion a year in incremental tariffs that will largely be on motor vehicles and parts, computer & electronic products, electrical equipment, and agricultural products.   

Canada tariffs 

Similar to Mexico, a 25% tariff was set to be imposed by the executive order on all Canadian origin products, with the exception of energy products such as oil, natural gas, and electricity, which will be subject to a 10% tariff. The US administration cited Canada's alleged insufficient cooperation in controlling the flow of fentanyl across the border and illegal immigration as the primary reason for these tariffs.  

On the same day that President Trump signed the executive orders on US tariffs, Canadian Prime Minister Justin Trudeau announced that Canada will impose its own 25% tariffs on C$155 billion worth of US goods. However, similar to Mexico, on February 3 President Trump agreed to a 30-day pause on the tariffs in response to Prime Minister Trudeau’s announcement of a C$1.3 billion border plan to stop the flow of fentanyl. 

PwC US tariff industry impact for Canada: If implemented in the future, a 25% tariff on Canadian products would result in approximately $73 billion a year in incremental tariffs while the lower tariff of 10% on energy resource products including oil, gas, petroleum and coal products, would result in approximately $13 billion a year in incremental tariffs. Major products impacted are crude oil & natural gas, motor vehicle & aerospace products and parts, metal manufacturing materials, chemicals, food products, and agricultural products. 

The takeaway

As President Trump seeks to implement his America First Trade Policy, the potential impact to the trade landscape appears substantial and is proving difficult for companies to navigate as they look to understand how tariff measures and counter measures will impact their supply chains and business models. Companies should perform comprehensive modelling exercises to understand their tariff and business impact, as well as understand potential mitigation strategies. In addition, as the trade landscape is expected to change rapidly as countries retaliate, companies need to stay updated on the latest trade developments in order to maintain evolving supply chain and trade strategies to effectively lessen the impact of tariffs and supply chain disruption in this dynamic trade landscape.  

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Ed Geils

Ed Geils

Global and US Tax Knowledge Management Leader, PwC US

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